After Leaping 27% SFC Energy AG (ETR:F3C) Shares Are Not Flying Under The Radar

SFC Energy AG (ETR:F3C) shares have continued their recent momentum with a 27% gain in the last month alone. Taking a wider view, although not as strong as the last month, the full year gain of 21% is also fairly reasonable.

Following the firm bounce in price, given close to half the companies in Germany have price-to-earnings ratios (or "P/E's") below 18x, you may consider SFC Energy as a stock to avoid entirely with its 45.9x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

We've discovered 1 warning sign about SFC Energy. View them for free.

SFC Energy hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

View our latest analysis for SFC Energy

Want the full picture on analyst estimates for the company? Then our free report on SFC Energy will help you uncover what's on the horizon.

How Is SFC Energy's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as SFC Energy's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered a frustrating 55% decrease to the company's bottom line. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 44% per year during the coming three years according to the five analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 16% each year, which is noticeably less attractive.

With this information, we can see why SFC Energy is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Shares in SFC Energy have built up some good momentum lately, which has really inflated its P/E. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of SFC Energy's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Having said that, be aware SFC Energy is showing 1 warning sign in our investment analysis, you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.